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Decision on online sales tax delayed to the autumn

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A government answer to the thorny question of whether online sales should incur a tax is now not expected to come until the autumn. But there were insights this week into how such a tax might work. 

This week the government held used its new Tax Day to give the latest on business rates and the related question of the online sales tax. Its interim business rates report  weighed up both sides of the argument for an online sales tax. It also suggested that online retail sales are now worth £100bn a year, and that wider online sales, including software, holiday and accommodation  sales, come to about £700bn. A 2% tax rate has previously been floated. 

Chris Sanger, head of tax policy at business adviser EY, notes that the report points to some respondents as suggesting revenue from the online sales tax might go towards business rates, with a sizeable minority suggesting such a tax could help rejuvenate the high street. Added to that, he says, “‘a large majority of respondents’ were in favour of excluding click and collect and… ‘some respondents’ noted that ‘sales of travel, accommodation and software that previously would have occurred on the high street should be in scope,” the document provides some pretty clear hints as to how the government might look to develop any such tax.”  

Sanger adds: “Of course, the question not answered yet is whether the government will develop such a tax.  For that, we are told to wait until the Autumn Budget.” 

Parcelhero head of consumer research David Jinks says an online sales tax would be “as foolish as the window tax” that, back in the 18th century, meant thousands of householders blocked up windows rather than pay a tax based on how many their home had. 

He says: “We believe the new online sales tax could claw in as much as £14bn a year to help boost the government’s empty coffers, but it will be everyday home shoppers and the frail and elderly who foot this huge bill.”

Jinks also says a delivery tax option, put forward as an option in the interim report, would not address concerns around environmental sustainability as some suggest. “This is because an increased investment in more efficient delivery vehicles means that the environmental concerns related to delivery are reducing,” he says. “In fact, numerous academic reports have shown that home deliveries are significantly greener than shopping by car.

“Ultimately, the tax would hit US giants such as Amazon, of course, as well as UK stores. It’s rumoured Chancellor Sunak has postponed his OST plans until he can gauge President Biden’s reaction. We hope he uses this pause to think again.”

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